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Unveiling The Different Types Of Home Loans In India
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By: tushar
- November 01, 2023
Owning a home is a life-long dream for numerous individuals. A house is a place where families come together to cherish memories. It is a space where one returns to relax and get away from the hustle and bustle of life. However, purchasing a house is not as easy as it sounds. It is one of the most significant financial investments in one’s life. Paying a hefty amount at one go for buying a house is not a cake ride for everyone. It is when different types of home loans come to the rescue of such individuals.
Home loans are the financial tools that help individuals buy their dream home without needing to pay the entire amount in one go. These loans fund their house purchase and bridge the gap between aspiration and acquisition. Home loans play a significant role in providing financial support and stability to home buyers. While the concept of these loans is not very complicated to understand, the process of selecting the most suitable type can be overwhelming.
Expert guidance is required to choose the best home loan type based on your specific requirements and financial condition. However, even before consulting a finance expert, you must have a brief idea about the varying types of home loan in India. To help you with this, Home4us has come up with this blog today. It will introduce you to the varying home loan types. So, please continue reading below to learn about them to make an informed decision.
Different Types of Home Loans in India
The advancements in the financial world have given rise to several types of house loans. These loans empower homebuyers to buy a home of their choice without taking financial stress. To choose the most appropriate type, you must read below to know about them in brief.
Home Purchase Loan
One of the first types of house loans is a home purchase loan. As the name suggests, this loan is taken from a financial institution to buy an already-built home. This financial arrangement allows the homebuyer to buy a flat, bungalow or a house of any type by obtaining funds from the lender. Usually, banks and other financial institutions offer loans up to 80-90% of the price of the house, and the buyer is required only to pay a downpayment. The loan amount provided by the financial institutions is paid back to them by the borrower in monthly instalments in a suitable tenure along with an interest percentage. These loans are provided for old as well as new homes.
Property Loan
Another home loan type in this list is Property loan. This loan type is availed to buyers who wish to buy a property and build a house on it. A major difference between the Property and Home Purchase land is that the latter is given for already constructed homes while the former is given for buying land and constructing a home on it. After submitting all the required documents, the first instalment of a Property loan is disbursed by the financial institution for the purchasing of the plot of land. The remaining loan amount is disbursed as and when the construction of the home starts and progresses.
Plot Loan
Also known as a Land loan, a Plot loan is a loan taken by an individual from a financial institution to purchase a plot. Now, you might confuse this loan type with the two mentioned above. However, you must understand that all these three are different types of home loans. Unlike the loan mentioned above types, a plot loan does not accommodate the value of the home or its construction. The sole purpose of this loan is to cover the cost of just a plot. The construction cost is not included in this loan type. Also, this loan cannot be used to purchase an already-constructed home. It allows the buyer to purchase a plot and pay its value in EMIs over time.
Home Renovation Loan
As the name suggests, a Home Renovation loan is granted to individuals looking for financial support to renovate their home. This financial product is designed to fund remodelling, improvement or upgrading projects of existing homes. These home loans allow the borrowers to borrow funds from financial institutions to repair or renovate their homes. The reasons for renovation can differ from one homeowner to another. For example, some might wish to renovate their home to enhance their comfort level, while others might do it to increase resale value. This type of home loan is more likely a personal loan with high-interest rates. Consider a gold loan for renovating your home, which offers instant approval with low interest rates. The reasons for renovation can differ from one homeowner to another. For example, some might wish to renovate their home to enhance their comfort level, while others might do it to increase resale value. Remodeling kitchens or bathrooms, modernizing bedrooms and repairing kitchens are some of the many situations in which these loans can be taken Remodeling kitchens or bathrooms, modernizing bedrooms and repairing kitchens are some of the many situations in which these loans can be taken.
Home Construction Loan
The next type of home loan in India is a Home Construction loan that can be taken for building a home from the ground up. This loan type does not cover the cost of the plot or land on which the home is being constructed. It only funds the construction costs. The construction expenses included in this loan include labour fees, materials and other costs. One of the most crucial prerequisites for this loan is proof of owning the land on which you are constructing your home. A Home Construction loan is disbursed in stages as the construction progresses.
Bridge Loan
Are you selling your old home and purchasing a new one? If yes, a Bridge loan might be useful for you. These Home loans are short-term financing solutions for homeowners to manage a transition between the sale of their current home and the purchase of a new one. These loans are usually taken by individuals who wish to purchase a new home before selling the existing one. This financial aid helps to secure a new property that is in demand, and the buyer is scared of losing it if they wait for the sale of their existing property. A Bridge loan is used as a down payment. As soon as the old home is sold, the borrower repays the Bridge loan with some portion of the amount received from the sale.
Home Extension Loan
Often confused with a Home Renovation loan, a Home Extension loan is another home loan type. As understandable by its name, this financial product is availed to existing homeowners who want to expand their homes. These loans are availed if a homeowner plans to extend the space of their home. A Home Extension loan is lent by a financial institution to cover up to 90% of the expenses estimated for the construction required to expand the home. It must be clear that this loan covers only the construction expenses of the expanded part and does not allow you to renovate the existing home or purchase land to expand the home.
Step-up Loan
Young working professionals often find it difficult to take a normal home loan to purchase their space as they might not have an income sufficient to pay the least amount of EMIs. It is when Step-up loans come into play. These loans allow such individuals to take a home loan at low EMIs in the initial phase of their careers and increase the EMI value with time when they have an income enough to pay high monthly instalments to reduce the loan tenure.
To sum up
Purchasing a home is a dream of every individual. However, not everyone is wealthy enough to pay the entire value of a home in one go. It is when individuals rely on home loans to help them get their dream home. These financial products allow one to buy their dream home without worrying about paying in full. They convert the home value into feasible monthly instalments.
We hope the above guide has briefed you about the different types of home loan. So, evaluate all these types and consult a professional to find the most suitable one for yourself and buy or build your abode easily.
Frequently Asked Questions
What type of housing loan is best?
Home loans are of different types. Each of them is suitable for a unique situation. Therefore, it is impossible to title one as the best, as every home loan type has a unique purpose.
How many types of property home loans are there?
There are 8-10 types of home loans, including property, home purchase, plot, renovation and extension loans.
What type of loan is a housing loan?
A Housing loan is a secured loan that offers the borrower financial assistance to buy a home by keeping it as collateral.
What are the four classifications of loans?
Loans are classified into four classifications- secured, unsecured, closed-end and open-end loans.
Which bank provides the cheapest home loan in India?
Based on studies, Citibank offers the cheapest home loans in India.
Which bank is better for home loans, government or private?
Home loan criteria and eligibility laid by government banks are much more lenient than private banks. Also, they offer loans at lower interest rates.
Is it better to take a personal loan or a home loan?
Using personal loans as home loans is not suggested, as Home loans are available at lower interest rates
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